Key issues for foreign MLM companieswho are considering expanding your business to Japan.

Since Japanese consumers do not have long history of making contract with self-responsibility as the standards of business practice, the government administration has a strong tendency to regulate companies from the point of
view of consumer protection. Consumer centers stand on the side of consumers to solve consumer consultation, complaint and conflict cases. Therefore, it is necessary for MLM companies to operate business with a focus on consumer’s view point.

It seems recently that many companies are beginning pre-marketing in Japan despite of adequate preparation for legal restrictions.

Administrative staffs have strong negative views of MLM companies because MLM is commonly confused with pyramid marketing among administrative agencies and consumers.

Therefore, various duties and restrictions are placed on MLM companies based on the governing law: Act on Specified Commercial Transactions.

The following is our advice on the practical points to be prepared before expanding your business to Japan regarding governing law: Act on Specified Commercial Transactions, Pharmaceutical Affairs Act and Act against
Unjustifiable Premiums and Misleading Presentations as well as the features of Japanese MLM market.
Therefore, various duties and restrictions are placed on MLM companies based on the governing law: Act on Specified Commercial Transactions.

It should be noted that Act on Specified Commercial Transactions is applied even before “grand opening” of the business. Although Japan office is in fact just assisting personal import of consumers, the Japanese government regards the company as the target of regulation by the law since the company is recruiting a new member in this country. Your company must be prepared for this.

We expect that your company will operate fair business in Japan by preparing for the minimum requirements in advance.

Preparations

It is necessary to establish Japan office where a full-time staff can take charge of affairs concerning handling complaints even if the business is in pre-marketing stage. (Act on Specified Commercial Transactions requires a supervisor in Japan as an essential condition.) Since a request of coolingoff, in particular, should be accepted unconditionally, a quick response is essential. If the response was delayed, consumers will call consumer center for consultation. This will be regarded as an obstruction of cooling-off counted by consumer center. Your company will be placed in a watch list by the administration.

Two legal documents will be required even if the business is in premarketing stage. One is a sheet of outline that should be handed out prior to the membership registration and the other is a sheet that clarifies the content of the contract and issued immediately after the registration of the member.

The sheet of outline must be either handed out or dispatched from the Japan office. Submission of simply downloaded print from the company’s homepage will not be accepted and regarded as a breach of obligation in issuing document even if all necessary information is shown. (Main reason for this will be that black-and-white printout can not indicate the important matter in red.)

Displaying simple translation of US homepage in Japanese homepage is often a violation of Japanese laws such as Pharmaceutical Affairs Act, Act against Unjustifiable Premiums and Misleading Presentations and Health Promotion Act. While functional claim is permitted to some extent in the United States, direct expression such as “effect-efficacy”, “disease name”, “specific body site”, “promotion and prevention” and “distinct dosage” as well as indirect implication of such function is prohibited by the Japanese Pharmaceutical Affairs Act which is said to be most strict in the world. Violation of Pharmaceutical Affairs Act is an issue of police control and there have been many cases where police took action against the violation. This is why using US version HP translated into Japanese may constitute an offense. As a matter of fact, no functional claim is allowed for functional health food in Japan even if the expression is based on scientific results. The association can give advice on the expression of HP or leaflets.

A system is needed to impart basic knowledge about governing laws.
Tempting business talk using words like “surefire profits”, “on a firstcome-first-served basis”, “better to purchase inventory in excess to obtain high ranking by borrowing money from consumer loan companies” are deemed as misrepresentation (lying) which is a violation of Act on Specified Commercial Transactions. Similarly, talk using words like “surely get cured” is misrepresentation (lying) which is also a violation of Act on Specified Commercial Transactions. The administration is strictly monitoring exaggerated words or conclusive judgment over the function or benefit if the
merchandise.br
Legal education for the persons at the leadership position is necessary. The association will be willing to take on a duty of legal education. We hope that you will take advantage of this opportunity.

MLM companies and groups growing fast in Japan

One of the features of MLM companies and groups growing in Japan under the strict control is that they have succeeded in establishing a company culture where a regular user of merchandise can extend the benefit to a
wider circle of people naturally. This is because majority of women in Japan deem the tempting business talk like “easy profits” as vicious multilayer business (pyramid marketing that is illegal in the US) and have feelings of
resistance toward it. Through proactive actions to extend regular users, the group will become filled with grateful voices. Since members receive income as a result of their activity, the member who receive regular income without
feeling of doing business increases in number.
Japanese consumers have a feeling that foreign companies tend to inflame earning. Focusing on building up a regular users group will be a key element to develop MLM business in Japan.